While everyone else is watching the Russell 2000 index falling below its 200 day moving average again, today I’m watching the ratio between the S&P 500 Equal Weight Index (SPXEW) and the S&P 500 Index (SPX).
It is another way to compare small cap stocks to large cap stocks. When this ratio is falling it shows that smaller stocks are not performing as well as large caps and that rotation from small to large is likely under way. When the ratio falls below its 20 week moving average (on a weekly basis) the market generally gets choppy or declines over the next several weeks.
If it happens this week then it’ll be one more warning on top of all our other indicators signalling now is a time for a bit of caution.
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